Microsoft Corp. (NASDAQ: MSFT) is rewarding its shareholders once again with a quarterly dividend of $0.83, payable on Thursday, Dec. 12. That is a 10.7% increase over the prior payout. While the company has pushed heavily into the artificial intelligence (AI) space, the dividend payment underscores the management’s commitment to continuing to deliver consistent value to investors.
24/7 Wall St. Key Points
- Microsoft Corp. (NASDAQ: MSFT) just rewarded its shareholders again with a dividend hike.
- This Magnificent 7 stock is on track to become a Dividend Aristocrat.
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Why Investors Like Dividends
Dividend stocks offer two benefits.
Investors favor dividend stocks for two main reasons. The first is that they offer enticing total return potential. Total return is a comprehensive measure of investment performance that includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. It is one of the most effective ways to boost the prospects of overall investing success.
Dividend stocks can also provide investors with a steady, reliable stream of passive income. Passive income is money that is earned with little to no ongoing effort, usually from assets that generate cash flow. This income can come from a variety of sources, including stock dividends. Generating passive income is a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
Microsoft’s Dividend
A future Dividend Aristocrat?
Microsoft has hiked its dividend annually for about 20 years and appears to be on the path to becoming a Dividend Aristocrat. A decade ago, the payout was $0.31 per share. That is a compound annual growth rate of more than 10% in that time. The current dividend yield is 0.7%, which is not far off the average yield of its industry and sector. However, it is higher than the yields of most of the competitors named below.
Note that Microsoft’s share price has grown by around 850% in the past 10 years as well, offering investors plenty of growth along with the income.
Microsoft, the Company
A tech titan, software colossus, and AI leader.
This tech giant develops and supports software, services, devices, and solutions worldwide. It sells its products through original equipment manufacturers, distributors, and resellers, as well as directly through digital marketplaces, online, and retail stores.
The Productivity and Business Processes segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Microsoft 365 Copilot. Its Office consumer services include Microsoft 365 consumer subscriptions, Office licensed on-premises, and other services. This segment also provides LinkedIn, as well as dynamics business solutions such as Dynamics 365.
The Intelligent Cloud segment offers server products and cloud services, such as Azure and other cloud services; SQL and windows server, visual studio, system center, and related client access licenses, as well as Nuance and GitHub; and enterprise services including enterprise support services, industry solutions, and nuance professional services.
The More Personal Computing segment offers Windows, including Windows OEM licensing and other non-volume licensing of the Windows operating system; Windows commercial comprising volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things; and devices, such as Surface, HoloLens, and PC accessories. Additionally, this segment provides gaming, which includes Xbox hardware and content, Xbox game pass and other subscriptions, cloud gaming, advertising, and other cloud services. Search and news advertising services include Bing, Microsoft News, and Edge.
Its headquarters are in Redmond, Washington, which is in the Seattle area. The company was founded in 1975 by Bill Gates and Paul Allen and became highly influential in the rise of personal computers. Microsoft went public in March of 1986. Now it competes with or is similar to Alphabet Inc. (NASDAQ: GOOGL), Amazon.com Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), International Business Machines Corp. (NYSE: IBM), and others.
Microsoft announced or expanded partnerships with Adobe, Blackrock, Coca-Cola, Estee Lauder, Nvidia, Oracle, Palantir, ServiceNow, and others in the past year. It invested $3.3 billion in Wisconsin to spur AI innovation and economic growth there, and it invested $1.5 billion in Abu Dhabi’s G42 to accelerate AI development and global expansion.
Microsoft, the Stock
Wall Street remains optimistic.
This Magnificent 7 stock has grown over 190% in the past five years, outperforming the S&P 500. In the past six months, though, its 5% or so gain is less than that of the Nasdaq. Shares hit a multiyear high of $468.35 last summer, but the mean price target is up at $505.94. That means that Wall Street sees almost 15% upside in the coming year. The consensus recommendation is to buy shares, including 13 Strong Buy recommendations. RBC Capital reiterated its Buy rating last month.
The stock remains popular with hedge funds. Institutional investors hold more than 73% of the shares. BlackRock, State Street, and Vanguard have notable stakes. About 56 million shares, or less than 1% of the float, are held short. Note that an officer parted with some shares recently.
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